Businesses of tomorrow will either embrace clouds or be out-competed, and this is expected to unfold across all industries. On demand utility computing platforms such as Amazon’s web services (AWS) have enabled a new generation of software companies like Dropbox, Netflix and AirBnB to scale at unprecedented speed, build massive market valuation and disrupt traditional business models. And we are only at the beginning of this revolution.

Platforms for innovation

While Canada has shown lots of innovation in cloud software, infrastructure providers have been asleep at the wheel, content to protect existing revenue streams. With the exception of a few promising early stage startups, Canada lacks cloud platforms to support local innovation. Canada also lacks the risk capital. With our proximity to the USA, Canadian businesses such as Shopify and Beyond the Rack have largely turned to AWS which according to Gartner group accounts for 5 times as much capacity in use as its closest dozen competitors combined.

Big data gravity

Location matters. Storage consumption is increasing at about 50 percent per year, much faster than the capacity of networks. The speed of light is thus far an insurmountable limit. This leads to data gravity - with a significant amount of data is stored somewhere, more data and services tend to follow, gathering momentum and fostering an ecosystem. Big data is the new black gold, with the combination of Moore’s law, cheaper and faster storage and software such as Hadoop, business is opting to store all information now and analyze it later.

“Businesses of tomorrow will either embrace clouds or be out-competed, and this is expected to unfold across all industries.”

But in the brave new world exposed by Edward Snowden, that was enabled by similar trends, many businesses and countries are looking to avoid hosting their data in the USA and there has been a race to develop regional capabilities. Where data is located has big implications for performance, cost, legal compliance and importantly, perception. Why have we not seen similar investments in cloud platforms in Canada?

We are ready

The BSA Global cloud computing scorecard has Canada ranked 9th in 2013 for cloud readiness. The second largest country is 230th in population density which may have been a factor in becoming a world leader in telecommunications and mobile networks in the 20th century. Having the third largest supply of renewable fresh water helped establish us a world leader in hydroelectric power. We have a relatively cool climate. The 2013 Data Center Risk Index report ranks Canada #5 out of 30 countries for safe investment in data centers. Additionally, a 2013 WEF report has us ranked out of 144 countries at #6 in education. We are a big producer of top engineering talent.

This should all be great news for Canada — cloud computing requires great connectivity, affordable power, cool air, and top engineering talent combined with world class data centers a safe, democratic country with a business-friendly legal system and close proximity to major markets.

We are the problem

Unfortunately the same report has Canada at 24th in business adoption of ICT, which may be due to our resource focused economy. We are 47th in government adoption of advanced technology despite a massive IT budget. We are 109th in mobile phone subscriptions per capita and 92nd in cellular cost despite mobility driving a huge boom  in many sectors of business. Finally, we are 24th in average bandwidth per broadband user and 37th in cost. Hardly what one would expect of a G8 nation. A friend of mine at Netflix recently explained that Netflix defaults to a lower resolution for Canadian users, due to our small data transfer caps, high costs of additional bandwidth and risks of traffic shaping. We have become a digital 2nd world in the past decade.

We don’t have meaningful risk capital, venture capital actually willing to burn money to capture market share. Instead we have private equity and banks who demand slow, sustainable, low risk growth models, not a path to a global leadership position. High growth Canadian companies get funded by US VC and move to the US, or get acquired outright by US companies, Shopify being a rare exception. There are not many options for aggressive growth in Canada.

In 2014 we expect most major US cloud providers to establish a Canadian presence to tap the unserved market, turn our fantastic raw materials into a finished product, and sell it back to us. Also look for Silicon Valley VCs to increasingly look north for diamond in the rough cloud software firms. Conservatism and protectionism only delays the inevitable.

Cloud platforms and the eco-systems they support will be a trac-tor beam for talent and new business models. If software is going to eat the world, let’s make it Canada’s software. If we don’t pay attention our neighbour will continue to eat our lunch by attracting our top talent and acquiring our most promising startups.

What Canada needs for success in a software world

  • Develop a comprehensive national strategy to accelerate our cloud platforms and cloud software. Understand and harness data gravity.
  • Having an internet bill of rights for Canadian business and consumers and force the telecom oligopoly to meet those fundamental needs will benefit the entire economy. Force them to make money by creating additional value.
  • Support investment in world class datacenters and cloud platforms which are the coral reefs and rainforests of cloud services.
  • Develop risk capital for investment in software and platforms for digital business. Tax credits are only useful for certain kinds of business; there needs to be a better mix of economic stimulus.
  • Enhance and exploit our perception by the world that Canada is more data friendly than our neighbour.